By Alexandra Alper
WASHINGTON, Sept 21 Overly tough new swaps rules
drafted by the Commodity Futures Trading Commission are
unintentionally pushing swaps players into the futures market, a
Republican regulator said on Friday.
Scott O'Malia, a commissioner at the CFTC and frequent
critic of many of the agency's rules, said that the cost and
complexity of the new swaps regime has caused a market shift
towards futures that was not intended by Congress or the
"I believe the regulatory uncertainty was so great that
energy markets voted with their pocketbooks and moved their
trading business from the complex regulatory nightmare of the
swaps markets to the well-functioning futures markets," O'Malia
said, citing the recent decision by IntercontinentalExchange
Inc's to transition some energy products to futures
"I'm not certain that other asset classes like interest
rates or credit default swaps will be able to find the same
relief from the regulations, but I am certain that market
participants at all levels and in all asset classes are
discussing a possible move to the futures market," O'Malia said
at the University of Notre Dame Business Law Forum.
The rules that may be driving the shift were mandated by the
2010 Dodd-Frank financial reform law, aimed at boosting
transparency and limiting risk in the $648 trillion
over-the-counter global swaps market.
The law was crafted as a response to the 2007-2009 financial
crisis, which was fueled by risky swaps trades at firms like
insurer American International Group that required
multi-billion dollar taxpayer bailouts.
In July, ICE announced plans to transition all its cleared
energy products to futures contracts by January, citing
regulation as the primary reason.
"Based upon our extensive analysis of new swap rules and
consultations with a wide variety of customers, we believe that
these policies will increase the cost and complexity for swaps
market participants, both in absolute terms and relative to that
of futures market participants," Chuck Vice, ICE president and
chief operating officer, said in July.
Under the new rules, most swaps will have to be traded on
transparent exchanges or special trading platforms and routed
through clearinghouses. Major players, so-called "swap dealers,"
will face new requirements that they back their trades with
collateral and capital.
All swaps will have to be reported to a swap data
repository, which ICE has described as "a new and untested